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Crude oil prices have seen a drop in the last week. The Brent crude futures on the Intercontinental Exchange (ICE) lost 1.5 per cent as it closed the week at $80.30 a barrel.
Likewise, the MCX crude oil futures (May contract) was down 1.8 per cent as it ended the week at ₹6,286 per barrel.
The prices saw a dip despite positive data from the US — according to the data by Energy Information Administration, the inventories in the US dropped by 5.1 million barrels for the week ended April 21 versus the expected drop of 1.3 million barrels, showing more consumption.
But the price decline was largely due to the concerns with respect to the demand for the energy commodity.
Charts show that crude oil futures are nearing a support, and this increases the probability of the prices going up from the current level. But it may not be an easy path. Here’s an analysis.
MCX-Crude oil (₹6,286)
The May futures of crude oil declined through the week, but recovered on Friday. Even though it marked an intraweek low of ₹6,070 on Friday, it quickly recovered and recouped some of its losses.
There is a chance that the contract could see a recovery as it has bounced near the support at ₹6,000.
That said, we might as well see a decline from the current level of ₹6,286 before a rally. Do not be surprised if the fall extends to ₹6,000, post which it can see a leg of uptrend. In such a case, we expect the crude oil futures to rise towards the key resistance level of ₹6,800. A breach of this can take the contract to ₹7,000.
On the other hand, if the contract slips below the support at ₹6,000, there might be a swift fall to ₹5,500 — the nearest notable support. Subsequent support is at ₹5,000.
Trade strategy
Traders with higher risk appetite can buy crude oil futures now at ₹6,286. Add more longs if the price dips to ₹6,070. Place stop-loss at ₹5,830.
When the contract rallies past ₹6,580, tighten the stop-loss to ₹6,400. Exit the longs at ₹6,750.
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